Friday, April 28, 2006

Chicken, adultery, and other bad "Islamic finance" analogies

The pietist view of Islamic finance is often defended based on bad analogies. A version of the first analogy was heard repeatedly at the Harvard Islamic Finance Forum, following a National Bank of Pakistan assertion that beef burgers at McDonald's in Karachi taste the same as beef burgers in Boston, but the former is halal and the latter is haram. I'll get to this analogy later, at the risk of losing credibility with many Muslims (since I do eat McDonald's burgers both here in the U.S. and elsewhere, after saying the basmala).

Let's first get to the second bad analogy, which is easier to dismiss: It is asserted that the only difference between marriage and adultery is a proper marriage or nikah contract. Similarly, the argument goes, the difference between a secured loan and murabaha financing (the ludicrous contract in which the bank buys a property and then sells it, assigning the ultimate buyer as an agent to buy the property on the bank's behalf and then to sell it to himself, incuring additional costs to sustain a fiction of "trade" as opposed to "loan") is merely the difference in contract.

The obvious reason that this analogy never gets off the ground is that the default ruling in sexual relations (or bud` as classical jurists said, most graphically) is impermissibility, unless there is a valid marriage contract. In contrast, the default ruling in financial transactions is permissibility, unless there is proof of existence of riba or gharar. In this regard, see my earlier challenge on secured lending operations, such as mortgage financing, wherein legal and equitable title are separated, and which cannot be classified under the same category as the classical qard, wherein interest is forbidden riba. In fact, as the OCC has concluded, murabaha and other "Islamic" financial forms are nothing but elaborate variations on the standardized western models of secured lending -- which are part of the business of banking.

In addition, there is clear benefit in requiring proper marriage contracts: Those contracts protect the rights of married parties to inheritance, protect the rights of unborn children, etc. Were one to write another contract that fulfills all of those legal functions (e.g. civil marriage contracts in western societies), without using the Arabic word "nikah" as Al-Shafi`i required, for instance, one would still have a valid marriage. Hence, the purpose of using the contract name is substantive (in the absence of complete contracts, the contract name provides many unwritten provisions, as dictated by jurisprudence or custom) rather than spuriously formalistic.

Now we get to the issue of halal meat, chicken, etc. There, too, one can argue that the prohibition technically disallows Muslims from eating two types of meat: (i) meats of animals or birds that were not properly slaughtered, and (ii) meats of animals or birds that were slaughtered as ritual sacrifices for pagan gods. In the first instance, (a) there may be health hazards due to blood not being drained properly, and (b) there may be inhumanity in the way that the animal was killed (e.g. painfully, or slowly), which Muslims should never support. In the second instance, eating animals that were sacrificed for pagan deities may support the pagan cults, help them to recruit more members, etc., which also should never be supported. Otherwise, if the animal was properly slaughtered, and the names of pagan or other deities were not invoked in its slaughter, one can take the juristic opinion of saying "bismillah" and eating -- which I do, as do most Muslims whom I know.

Of course, there are Muslims who insist on halal dhabiha, and would pay extra for its meat. That is their choice, but they shouldn't call that meat "Islamic" (implying that other meat is haram or un-Islamic). Likewise, I may be willing to buy financial products and services from Muslims, even if they cost more, just to support their businesses, in the same way that I support Muslim food stores that sell "halal meat", even though I consider the other meat halal as well (either as food of "people of the book", or as properly slaughtered meat on which no names of deities were invoked, thus allowing me to say the basmala). If they call it "Islamic meat", however, I would probably be just as offended as I am by the cheap marketing brand name "Islamic finance", which insults the name of my religion.

(let there be a pledge taken (mortgaging)) given to the creditor in lieu of writing the transaction. The Two Sahihs recorded that Anas said that the Messenger of Allah died while his shield was mortgaged with a Jew in return for thirty Wasq (approximately 180 kg) of barley, which the Prophet bought on credit as provisions for his household. In another narration, the Hadith stated that this Jew was among the Jews of Al-Madinah

1. Are you referring to me in quoting this verse? That I am trying to hide the light of Allah, or that I am an infidel?

I merely do not wish to post information that may be seen as promotional, incriminating or othewise favoring any particular commercial provider over another. I would welcome discussing the same issues that you raised, but doing so in the abstract, so that I am not seen as promoting or denouncing any provider, be it the specific bank you mentioned or any other.

2. You translated the end of the verse of documentation of debts out of context (dealing with use of pawning or mortgaging a property if traveling or if there is no scribe available to document the debt; which you neglected to translate).

More generally, of course, rahn used as security for debt is well accepted in Islamic law.

Indeed, as I have already stated earlier on this blog, I have a conventional mortgage, and so far, I have not received any convincing reply to my public challenge to prove that my conventional mortgage constitutes forbidden riba.

As background, I should state that you had told me that you work for a provider of Islamic mortgages, and the one we were discussing is a competitor. The direction of the argument suggested that that competitor may get in trouble with regulators if what they say in their advertising is true, and they may be sued for false advertising if it is false. I did not wish to pursue that line.

Please re-post any publications that you wish to reference again, keeping the discussion general: would regulators allow a bank to carry the type of real estate ownership risk that we were discussing, or must it act purely as a financial intermediary?

The verse was not directed to you personally. It came to my mind to remind myself and everybody that just because there is a lot of noise out there suggesting that there is no practical alternative to an interest/usury based system of finance - does not mean that it is necessarily true.

On the contrary firstly, I much appreciate your initiative in questioning the scholars. And secondly I appreciate you allowing me to post on your blog.